Meltdown spurs swap deals

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The age-old barter system is staging a comeback because of the global financial crisis.

Companies - faced with growing inventories as tight liquidity restricts the number of buyers - are exchanging goods and services without using money.

People have been trading goods informally for thousands of years. Now corporate barter is helping businesses to conserve cash, generate new customers and sales channels and monetise excess capacity or inventory.

The trend is good news for companies and consultants that arrange barter deals.

Saud Al Khaja, an Account Executive at BizXchange, a Dubai-based business-to-business barter dealer, said: "Businessmen and companies are accustomed to using credit and loans to finance their business and inventory management. As the credit flow has dried up companies are increasingly turning to barter deals.

"About 65 per cent of the Fortune 500 companies use barter to improve their cash flow and bottom lines. When the credit crisis started affecting the region we began to get many requests to arrange deals.

"The interest is highest among property and real estate companies, construction material dealers and information technology, media and furniture firms."

BizXchange has offices in Washington and California and affiliates in Singapore, Turkey, Malaysia, Australia and the UK. The company says it is recognised as one of only two certified trade exchanges in the world by the International Reciprocal Trade Association (IRTA).

Several companies in the UAE have either set up barter departments or are in the process of doing so to improve cash flow by trading unsold property, hotel rooms, airline seats or
building materials for goods and services they require.

The IRTA, a non-profit body that promotes cashless trade, lists a membership of nearly 50 barter exchanges around the world. Most are in the US and the UK but the organisation also has members in Canada, Singapore, Italy, South Africa, Germany, the Netherlands, Mexico and Turkey.

BizXchange is helping some leading clients in the UAE and other GCCGCC states to engage in barter trade.

"The current global financial situation is the right time for many companies to look at barter deals," added Al Khaja. "We are facilitating bulk deals. If a developer is sitting on unsold property units and cannot find easy finance to complete other construction projects he can engage in a barter deal with a construction material supplier. He can exchange a certain number of property units for steel, cement or even a truck. The truck company may get support from other service providers such as media or marketing firms.

"Due to the current situation more companies in the Gulf Co-operation CouncilGulf Co-operation Council are interested in barter deals. We are expanding our staff in order to operate in other Gulf countries. We have many serious queries from Qatar, Saudi Arabia and other Gulf states."

A senior manager at a leading media group in the UAE said: "We have set up a barter department because a lot of advertisers prefer to pay in kind or services.

"We obtain airline tickets, entertainment, office furniture and hotel rooms in exchange for advertising space. The system has worked very well and in the current market situation the number of deals is growing."

The company also obtains car rental and transport services for its staff and executives through barter deals.

A real estate firm running or starting a new project can meet the upfront costs for advertising, printing, publishing and construction materials through barter deals.

Turk Barter, a barter exchange house based in Istanbul, Turkey, has about 10,000 member companies engaged in domestic and international deals.

IRTA Executive Director Ron Whitney, said: "Ancient barter was man's first form of commerce and consisted of one-to-one direct exchange of goods and services. Advances in technology have greatly expanded and enhanced the scope of barter far beyond this limited one-to-one model.

"Last year IRTA member companies made it possible for more than 400,000 firms to utilise their excess business capacities and under-performing assets to earn about $10 billion [Dh36.7bn] in previously lost and wasted revenues."

BizXchange focuses on sectors such as media, sponsorship and trade shows, travel and hospitality, printing and signage, real estate, excess products and services and logistics.

"Rather than paying cash, a barter transaction is conducted through BizX trade credits," said a company source. "The seller's account is credited and the buyer's account is debited. The trade credits are then used to offset cash expenditure or used to expand existing budgets. The system allows companies to pay expenditure with new sales of their products."

By VM Satish

© Emirates Business 24/7 2008